Why Your Payment Aggregator Doesn’t Want You to Make Money

There are many businesses that swear by payment aggregators due to the fact that it makes starting that business much easier. The payment aggregator choice has risen in popularity in recent years because it allows a merchant to accept online payments without having to set up a formal merchant account.

Payment aggregators enables merchants to accept credit card and bank transfer payments without obtaining their own merchant account through a bank. Instead, one merchant account is used by a number of merchants. But is that all there is to it?

Online statistics firm Statista predicts that more than 100 million Americans will use peer-to-peer payments in 2020 due to the convenience and simplicity that payment aggregators offer. However, there’s more that you should know about how payment aggregators operate if you choose to put your faith in the hands of PayPal or Square when starting your business.

What Should I Know About the Main Aggregators?

PayPal is the biggest payment aggregators in the business right now due to sheer volume as the service amassed $13.09 billion in revenue in 2017, per Statista. Plus, the total payment volume conducted through PayPal last year reached a whopping $451 billion. As you can imagine, the company makes most of its revenue from the fees it charges companies to conduct their business through the site and application.

Much like it rival payment aggregators, PayPal doesn’t charge you for opening an account through the site. However, accepting payments on credit or debit cards through e-commerce partners such as eBay will cost you a 2.9% fee, as well as $0.30 of the amount received for a purchase.

Square has a similar business model, although its fees are dependant on the payment method used to buy a product, which fall under swipe transactions or manually-entered ones. Swipe transactions cost merchants a 2.75% fee, while manually-entered transactions cost 3.5%, as well as $0.15 of the total transaction amount.

In 2017, Square raked in $2.2 billion in revenue from these fees. Plus, the gross payment volume of business conducted through the payment service reached $21.37 billion during the company’s second quarter of fiscal 2018.

Meanwhile, Stripe charges a 3.4% plus $0.50 of the total amount paid when your business accepts a credit or debit card payment. Payments used through its services, which include Alipay or WeChat Pay, will set you back 2.2% plus $0.35 of the payments. So while all of these options make your job easier, these fees add up in the long run, taking a considerable chunk of your profit off.

Benefits of Using an Aggregator

The most obvious benefit of choosing the likes of PayPal or Square to handle your payments is how quick the application process is. Attaining your own merchant account is not an easy process because you’ll require approval from a bank, which means that all your ducks need to be in order and then some.

Meanwhile, getting approved with an aggregator is a much shorter process that doesn’t require you to present PCI DSS compliance and every single document and license pertaining to your business. Plus, setting up your own merchant account means that you will be responsible for all the risks linked with chargebacks and fraud.

With a payment aggregator, you can start accepting card payments almost immediately after getting approval from the company. This is because setting up your e-commerce payments or even face-to-face ones with a mobile swiper on your cell phone is as easy as it sounds with an aggregator.

Plus, having a straightforward fee structure with no surprises means that you know what you’re getting yourself into. Choosing a payment aggregator may sound like the obvious choice when you consider all these elements, but there are a lot of negatives linked with companies such as PayPal that could mark the end of your business venture.

Short- and Long-Term Drawbacks Trump Benefits

There are some massive drawbacks associated with choosing a payment aggregator, with the main one being the fact that it’s very easy for aggregators to put your account on hold for anywhere from 24 hours to 30 days. This is due to the fact that payment aggregators are responsible for handling the risk associated with fraud, which means that any suspicious activity results in an account suspension.

You won’t get any warning when this happens and there are dozens of situations in which a payment may be seen as “suspicious.” For a person trying to run a business, these account freezes have a negative effect on your ability to pay employees and make other business expenses in a timely fashion.

Other problems associated with payment aggregators include the fact that they make it very difficult for high-volume merchants to operate and grow due to the fact that they have fixed rates and low processing limits. Even a small business that wants its sales to grow above $3,000 per month will struggle to conduct their work smoothly without facing some roadblocks.

Processing rates are also usually quicker through an individual merchant account as funds will be available to you more swiftly, often within 48 hours of the transaction being approved. Plus, aggregators are notorious for having poor customer service due to the high volume of businesses and individuals that they have to deal with.

If you don’t want to be held up in a queue, you’ll have to pay up to $459 a month with PayPal to skip the line, an amount that is quite similar with other services. On the other hand, the holder of an individual merchant account is more likely to give you their full, undivided attention in a timely manner without charging you extra to do so.

All in all, these popular payment aggregators do more to prevent you from running your business than they facilitate it. From fixed limits, low processing limits, account freezes and termination to additional charges that you face later on, you will spend plenty of time and money simply trying to ensure that your business runs smoothly with an aggregator.

An individual merchant account may be harder to get, but your life is much easier and cheaper once you do set one up.

If you’re hoping to find one of the simplest and most reputable payment processing services in the world, our team at PayArc walks you through the process of setting up the types of payments you receive without any surprises. Plus, we offer industry-standard encryption and the best risk-mitigation tools to ensure your business runs as smoothly as possible.